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Your client John comes to see you in July 2014 asking to prepare his income tax return forthe year ended...




Your client John comes to see you in July 2014 asking to prepare his income tax return for;the year ended 30 June 2014. His shoebox of receipts, invoices and other paperwork;reveals the following information;John purchased a house on 26 August 1987 for a cost of $170,000 and also incurred legal;costs of $1,500 and stamp duty of $4,400 in relation to the purchase. John lived in the;house as his main residence until 31 July 2003, at which time he moved interstate for;work. The market value of the house at this time was $230,000.;From 1 August 2003 until 30 April 2014 the house was rented out to different tenants, the;last of whom damaged the home. The following costs were incurred in May 2014 to rectify;the damage to the house;$;Replacing carpet on lounge room floor 800;Repairing holes in walls of 2 bedrooms 1,200;Repainting the entire inside of the house 3,000;Professional cleaning of the whole house 700;Replace bathroom vanity and basin 1,500;After this work was completed John decided to sell the house because he no longer;wanted to deal with irresponsible tenants. He sold the house on 15 June 2014 for;$300,000 less commission of $2,200.;John also sold on 15 June 2014 his 550 shares in Commonwealth Bank for $44,000. Of;these shares, 500 were originally acquired in September 1991 at a cost of $5.40 per;share. The remainder were acquired in a 1 for 10 bonus share offer in October 2000;which were issued from the company?s share capital account.;In addition to the above transactions, John had the following income and expenses for the;year ended 30 June 2014;Income $;Salary (occupation ? sales representative) 54,000;Entertainment allowance 3,000;Rental income from the house mentioned above 16,200;Reimbursement of water rates for this property (by tenant) 320;Franked dividends from Commonwealth Bank shares 2,106;Family Tax benefit (for his 4 year old son) 5,200;Cash received from deceased grandmother?s estate 15,000;(Continued on next page);Expenditure $;Meals incurred when entertaining clients in his job as a sales;representative for his employer 1,800;Purchase of work clothing and shoes 380;Child care costs (approved care for his 4 year old son) 4,800;Purchase of a mobile phone 1 October 2013 (used 80% for work purposes) 750;Monthly call costs on his mobile phone (above) 600;Train tickets for travelling to and from work 150;Rates on the rental property 1,200;Insurance on the rental property 850;Income protection insurance 650;Life insurance 180;Legal fees in relation to sale of rental property 1,100;Tax Agent fees (including $700 advice regarding sale of rental property) 1,000;Brokerage costs in relation to sale of shares in Commonwealth Bank 250;Medical expenses for himself and his son (including $1,200 hospital costs;$900 doctor visits, $1,800 dental work, $720 remedial massage;costs not prescribed by doctor, $800 prescription sunglasses) 5,420;Amounts refunded by health fund and Medicare $1,500;John?s PAYG Payment Summary shows PAYG withholdings for the year 9,097;REQUIRED;1. Discuss the tax implications of the sale of rental property, including any exemptions;available and the deductibility of the costs to rectify damage. Calculate the;assessable gain, if any.;2. Discuss the tax implications of the sale of the Commonwealth Bank shares.;Calculate the assessable gain, if any.;3. Discuss the assessability and deductibility of all the other items listed in the;information.;4. Calculate John?s taxable income for the year ended 30 June 2014.;5. Calculate the tax payable/(refundable) for John for the year ended 30 June 2014;including all additional levies and tax offsets.;NOTE;You must support your discussion and interpretation with reference to legislation, cases or;rulings.


Paper#79564 | Written in 18-Jul-2015

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